Good morning. My name is Abigail, and I will be your conference operator today. At this time, I would like to welcome everyone to the Park Electrochemical Corp. Third Quarter Fiscal Year 2016 Earnings Release Conference Call. [Operator Instructions] Thank you. .

At this time, I will turn the call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore, you may begin your conference. .

Thank you, operator. Welcome, everybody, to Park's third quarter conference call and also happy new year to all of you. I have got Matt Farabaugh with me, as usual, our VP and CFO. And as usual, we'll start with some introductory remarks. Matt will take us off -- kick things off with the financial commentary.

And I just want to remind you that a transcript of Matt's introductory comments are already posted on our website. Go ahead, Matt. .

Thanks, Brian. Certain statements we may make during the course of this discussion which do not relate to historical financial information may be deemed to constitute forward-looking statements. Any forward-looking statements are subject to various factors that could cause actual results to differ materially from our expectations.

We have set forth in our most recent annual report on Form 10-K for the fiscal year ended March 1, 2015, various factors that could affect future results. Those factors are found in Item 1A and after Item 7 of that Form 10-K. Any forward-looking statements we may make are subject to those factors..

I'd like to briefly review some of the items in our third quarter ended November 29, 2015, P&L, which are not specifically addressed in the earnings release. .

During the fiscal year 2016 third quarter, North American sales were 53% of total sales, European sales were 7% of total sales and Asian sales were 40% of total sales compared to 50%, 9% and 41%, respectively, for the 2015 fiscal year third quarter and 56%, 6% and 38%, respectively, for the 2016 fiscal year second quarter..

Sales of Park’s high performance non-FR-4 electronic materials were 94% of total electronics materials sales in the 2016 fiscal year third quarter, 92% in the 2015 fiscal year third quarter and 93% in the 2016 fiscal year second quarter..

Park's electronic sales were $25.5 million or 74% of total sales in the 2016 fiscal year third quarter compared to $25.4 million or 73% of total sales in the 2015 fiscal year third quarter and $26.2 million or 69% of total sales in the 2016 fiscal year second quarter.

Park's aerospace sales were $8.9 million or 26% of total sales in the 2016 fiscal year third quarter compared to $9.3 million or 27% of total sales in the 2015 fiscal year third quarter and $11.8 million or 31% of total sales in the 2016 fiscal year second quarter. .

Investment income, net of interest expense, in the 2016 fiscal year third quarter was negative $128,000 compared to negative $139,000 in the 2015 fiscal year third quarter and negative $39,000 in the 2016 fiscal year second quarter..

Depreciation and amortization expense in the 2016 fiscal year third quarter was $847,000 compared to $890,000 in the 2015 fiscal year third quarter and $840,000 in the 2016 fiscal year second quarter.

Capital expenditures for the 2016 fiscal year third quarter were $92,000 compared to $149,000 in the 2015 fiscal year third quarter and $52,000 in the 2016 fiscal year second quarter..

The effective tax rate before special items was 14.2% in the 2016 fiscal year third quarter compared to 10.1% in the 2015 fiscal year third quarter and 12.7% in the 2016 fiscal year second quarter. .

Gross profit for the 2016 fiscal year third quarter was $10.3 million or 30.0% of sales compared to $8.6 million or 24.8% of sales for the 2015 fiscal year third quarter and $10.4 million or 27.3% of sales for the 2016 fiscal year second quarter. .

Before special items, selling, general and administrative expenses for the 2016 fiscal year third quarter were $5.3 million or 15.3% of sales compared to $5.8 million or 16.6% of sales for the 2015 fiscal year third quarter and $5.0 million or 13.2% of sales for the 2016 fiscal year second quarter.

Before special items, earnings before income taxes for the 2016 fiscal year third quarter were $4.9 million or 14.3% of sales compared to $2.7 million or 7.8% of sales for the 2015 fiscal year third quarter and $5.3 million or 14.0% of sales for the 2016 fiscal year second quarter.

Before special items, net earnings for the 2016 fiscal year third quarter were $4.2 million or 12.3% of sales compared to $2.4 million or 7.0% of sales for the 2015 fiscal year third quarter and $4.6 million or 12.2% of sales for the 2016 fiscal year second quarter. .

GE, Sanmina, Shennan Circuits, TTM and WUS, in alphabetical order. The top 5 customers totaled approximately 42% of total sales during the 2016 third quarter. Our top 10 customers totaled approximately 54% of total sales, and the top 20 customers totaled approximately 70% of total sales for the 2016 fiscal year third quarter. .

Since the share repurchase authorization announced on January 8, 2015, the company has purchased an aggregate of 699,788 shares at a weighted average purchase price of $20.71 totaling $14,491,000, leaving 550,212 shares that may be purchased by the company pursuant to such authorization.

The company purchased an aggregate of 118,756 shares at a weighted average purchase price per share of $21.61 and an aggregate purchase price of $2,566,000 during the 2015 fiscal year fourth quarter, an aggregate of 444,834 shares at a weighted average purchase price per share of $21.32 and an aggregate purchase price of $9,484,000 during the 2016 fiscal year first quarter and an aggregate 136,198 shares at a weighted average purchase price of $17.92 and an aggregate purchase price of $2,441,000 during the 2016 fiscal year second quarter.

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Okay, thanks, Matt. It's Brian again. And once again, a Matt -- a transcript for Matt's -- of Matt's comments are posted on our website. A lot of detail there, so maybe want to check that out.

We'll just do a little bit of commentary about the third quarter P&L, and then I felt we should do something a little different this time, which is give you an update on some events of interest, at least some of you might be interested in those events..

Okay. So we had 30% gross margin in Q3 -- sorry, compared to -- even though the revenues were lower than in Q2, so why is that the gross margin was lower in Q2 as well? So a few things. Remember in Q2, we told you about there was a onetime purchase of a special kind of fabric for ablatives.

I think it was, what, $2.2 million, $2.3 million, which carried fairly low contribution. It was a little bit of a markup, but not much. So that was actually -- weighted down our gross margins in the second quarter.

That kind of flipped a little bit in the third quarter because we're starting to use that product, and we toll coat it, so the fabric is already owned now by the customer, so we do toll coating. It's very good contribution because there's no material content.

That will take over about 2 years, I think, to work off completely, but we did some of it in the third quarter. So that's a flip. That's actually a plus not a minus as we had in the second quarter the same transaction, but the flip side of the transaction. .

So also, our Kansas aerospace operation, it's doing better, and it's been a long haul. This is still not quite out of the startup mode, but I think coming along way. So our performance is better there. Our waste is better, just general overall operating improvements that helps contribute to a better gross margin, of course.

Maybe a little bit of mix, but I think it's mostly just better operating performance out of Kansas..

There was a little bit of inventory issue in Singapore, which we -- actually weigh it down in Q2. I mean, our revenues were higher than our production working down inventory. That normalized in Q3. Q3 is a normal quarter. In other words, reduction and revenue about equal. So that's just back to normal.

And that's a benefit for the gross margin in Q3 versus Q2..

High-performance, that continues to move up. Higher performance percentage, and of course, that always is going to be a contributor to better gross margin performance. And as we've mentioned numerous times, we're oversimplifying things by talking about high-performance being 94% because the rest is not that significant.

But what is significant is that what's in that high-performance revenue percentage, and there's a -- the big variety, large variety of products, which fall within high-performance, all of them, I would say, are good margin but some are better than others. So that would help us as well. .

SG&A, let's move to that. That's up in Q3, but remember that Q2 was unsustainable, the SG&A level, because we did some special adjustments in Q2. What we did was actually we significantly reduced the accruals for bonuses and profit sharing for the prior fiscal year, which hadn't been decided until that point.

At that point, we made the adjustments based upon the bonuses and profit sharing actually being paid. And that was a one-time benefit for Q2. .

A lot of people took significant reductions or actually many people didn't get any bonus at all, but that's how Park operates. So I don't know, there's a lot of other things that go up and down, which I think sometimes you get into the weed so much in these calls, I don't -- I'm surprised everybody wants to listen at all. .

Net interest expense. As Matt indicated, it was a negative in Q3 versus Q2. But we think that, as interest rates actually go up, that will benefit us because of the way that our loan interest is structured, and also we have more cash than loans. So that actually will benefit us to some extent. .

Let's see. The buyback, Matt gave you a lot of detail about that. We didn't buy any stock in the third quarter. Couple of things going on there. First of all, as we mentioned in the second quarter call, we have loan covenants, which restrict our ability to buy back stock.

But the other side of the equation is that since 2005, we've done cash dividends of $330 million. And as Matt indicated, we bought about $15 million of stock in this last authorization.

And we're at a level where we're starting to think we want to use our cash to invest in our business rather than to continue to just pay dividends and buy stock even at these stock prices, maybe somebody else will jump in and buy stock at this point rather than the company. So we're feeling little more reluctant to use the cash for that purpose.

We have other things that we would like to use the cash for. .

So let me see. Those are some introductory remarks. Now let's go to some discussion about what's going on at our company. Sorry, my notes are a little bit out of sequence here and so bear with me. Why don't we start with electronics, some news on electronics.

So we're in the final stages of a joint development agreement with a major electronics OEM, household name, to develop a next-generation product. We've been working on that agreement for, I guess, a few months, but I think we're pretty much at the finish line. So that's an exciting opportunity for Park, and we're looking forward to doing that.

Hopefully, it will happen. I think in the next couple of weeks that agreement will be signed, but I just want you to be aware of it because I think it's important for us. .

The penetration of our new products in Asia continues to be encouraging -- sorry, Meteorwave, we have Meteorwave 1000, 2000, 3000, 4000. Huawei, which is a major Chinese OEM, has put Meteorwave 2000 on 39 of its new parts for it's next-generation equipment. So we're pretty happy about that. That hasn't really ramped yet.

We're told that it'll ramp hard and fast when it does, so be ready..

Meteorwave 3000, 4000 introduced recently. Seems to be getting a lot of good attention and penetration in Asia. -20. I think, the story there is that we're seeing interest and -- activity, I should say, more than interest in -20 in a broader applications, not just for chip test. So that's a good thing.

This -20 was really considered -- intended rather to be an ultimate replacement for -13. -13 sells into the broader infrastructure market, not just chip test. That's what's intended for -20 as well. .

All right. So let's talk about aerospace. We got a lot of things to talk about regarding aerospace, some of which might be interesting. Let's start with GE, big dog in aerospace. We just entered into a development agreement with GE, which we're pretty excited about for a new product.

We're not going to talk about what the product is, but that's a done deal. That agreement was signed last month, and this will bring to bear the resources of GE Research, which are, of course, considerable. This is not for a niche product. This is for a product which would have very wide applications.

If it's successful, significant potential, very significant revenues. So we're very pleased about that..

We've been talking for a while about the long-term agreement with GE. Just a couple of weeks ago, we finally got the 10-year RFQ, which was, as far as we can tell, it's just for Park. It's not an RFQ intended to others, and it goes from '17 to '26, those years, '17 to '26. So that's good news, and we'll work through that.

I suspect it will take us a few months to work through the RFQ, and the result would be an agreement, long-term agreement. We're not going to talk about the revenue numbers, but you can only imagine they are pretty big numbers in that 10-year period, of course. .

There is a short-term issue, though I need to tell you about or I want to tell you about regarding GE. In the transition from Brand X to Park, there ended up with excess Park inventory to GE, and we're just recovering from that now.

So this coming year, 2016, the revenues will be off because in the transition, it turns out that GE has more inventory than they thought they wanted to..

So we're trying to regroup now and working together around how we're going to work down -- bring down that inventory for GE. That doesn't have any -- that's not a factor of GE's end market.

That's a function of inventory planning and purchasing and particularly related to the transition from Brand X, which is the legacy company that we've replaced to Park. So these things happen, and we're working through them. .

So the revenue, actually, in Q3 for GE was down from Q1 and Q2. We don't talk specifics, but it's already down. I've look -- we look at the forecast we've been provided with in connection with the 10-year RFQ. So we have '16 -- and I'm talking calendar year, as I'm sure I should call to clarify that. '16 will be a down year from '15.

'17 moves up quite nicely. '18 up from there, by '19 we're at the peak level at least in the forecast related to the RFQ..

So -- and you saw actually that the revenue in aerospace was down in Q2 -- Q3 versus Q2.

That was partly related to that onetime purchase and sale we talked about of the fabric inventory but also GE had a little [indiscernible], as I mentioned, the GE revenue was down in Q3 but it's already starting in the process of working down the excess inventory, which -- excess Park inventory, which GE has on hand. .

All right. So oh, yes, one more thing about GE. And I think, in March, we commercialized a product, which we call E-752-LT, and that's for AFP applications, automated fiber placement. That's an automated robotic way of making composite parts that many companies are using now. It provides many advantages.

It provides the consistency of automation as compared to hand layup. It also provides better precision rather, and it also reduces cost in terms of labor.

In any event, we've been going through about qualification of this product for GE was actually probably developed for them actually for about the last year, and we're just about finishing up the qualification with GE E-752-LT, that's again for AFP applications. So that's good. .

Going on to some other news in aerospace. We are being looked at. We're going through what's called screening for a very major program with another very large aerospace company. We just responded to another -- it's actually 12-year RFQ, which I don't remember the years, but I think it goes through maybe 2029 or something like that..

And the revenue is very considerable, very considerable. I suspect that the reason we're -- well, I shouldn't say -- just say looked at.

The reason we're being considered is probably in part because of the credibility we have from working with GE, which is considered to be a very premier aerospace OEM and one that has very exacting standards, not easy to work -- quality with GE.

So as I said, we are going through screening, which means that this company has purchased our materials and is going through a screening process, developing some preliminary data to determine whether or not to go forward with Park and qualify Park. That I'm not going to give the number, but revenue was quite, quite significant. .

Other items of interest, just for people who are interested in aerospace, I guess, or interested in Park. We're working with a spaceship company, you know them. And building struts for the current generation SpaceShipTwo, I guess it's called, a very critical component, I guess, that forms the structure between the 2 main units.

I think you already know we're working with James Webb on that space telescope..

Scorpion, remember Scorpion, that's the aircraft being developed by Textron AirLand. They're now building the second unit, I think, it's more of a conforming prototype, and we're already working on that unit as well. And what's interesting this time is every part we produce, we've also been asked to produce the tooling.

So it seems like maybe Park is developing a little bit of a specialty there. And it really helps the customer a lot because it allows the customer to get very fast response time because composite shop can move quickly but if the tooling isn't available, it doesn't really help if it takes 6 months to get the tooling.

So we're able to do the tooling, do the part very quickly. And when you're in the prototype game, speed is what really matters the most. So that's interesting for us and good news for us..

There's something called Flying Pentagon, E-4B. That's a 747-modified Pentagon in the air. I think they're doing about 4 of them, and we've been producing parts for that program as well. And another piece of news, which I think is good news, is we kind of got back in the Atlas V program for ablatives.

Ablatives is a focus for Park, but we dropped the ball, I think, a little bit in the last few years, where we weren't paying as much attention to it as we should have. But I think we're getting back in the game..

We're back on the Atlas V program, which is really good for us. It's with a different kind of reinforcement, it's all carbonized rayon with a phenolic resin, but it's a different product form than the product form we supply previously for the Atlas V.

And actually that was one of the problems we had with the legacy program is that the supplier of the reinforcement from the prior -- with the prior product form wasn't working out for the ultimate OEM, which I think is Lockheed. So that's -- it's good news, I think; at least, I think it is..

And those are some of the interesting updates I thought I'd share with you. So Matt and I decided that rather than just spend a lot of time focusing on the P&L, we'd discuss some more interesting news items with you. The P&L, most of the analysts are smarter than we are anyway and can figure out the P&L better than we can.

All right, operator, I think that does it for our introductory remarks.

Why don't we go to the questions now?.

[Operator Instructions] Our first question comes from the line of Sean Hannan with Needham & Company. .

So there seems to be some positives and negatives coming out of this commentary that you guys have provided here this morning. Just want to make sure that I'm thinking about some of this properly.

Even though we have some, I guess, immediate headwinds, where, let's say, we use the GE inventory work down as an example or perhaps not a robust -- necessarily robust environment at present on the electronics side.

Sounds like both segments had some pretty material stuff in the background that either could provide or aid some pickup later this calendar year or certainly for future years.

Is that a viewpoint that you share? Is that an appropriate characterization?.

I think it is an appropriate characterization, Sean. And before I continue, as I said my notes were not properly sequenced. So I forgot something I'm sure you consider to be important. So normally, we talk about how we're doing in the fourth quarter. Well, December, we're not getting off to a good start. December, it's a 5-week month.

Now 2 of those 5 weeks were holiday weeks. So it's hard to really extrapolate from those 5 weeks as to what it means. But I just want to comment that we haven't gotten off to a very good start revenue wise in December. But going back to your question, I think the answer is yes. I think we feel pretty good about our business.

I mean, look, if you work here, you would say, my God, we've got 2,000 problems a day, sometimes 3,000. But if you look at the bigger picture, I think we feel pretty good about our business in aerospace and electronics.

The immediacy of the opportunities are always going to be more quick with electronics and aerospace takes longer, but it's also more predictable. Electronics moves more quickly, less predictable. But for years now really, we've been focusing on building our business for the long term.

We've gone through series transition from, I guess, the '90s when we're very much electronics company and a high-volume electronics company at that to a very different kind of company today, more of a niche company. It's been our focus. It hasn't been easy, and we're certainly very, very, very far from the finish line.

I know a lot of people got discouraged with us over the last few years and became negative about us, but we had to stick to what we believe was right for the company and our future. We've never been short-term people, we never will be.

And if people -- if investors are interested in management with a short-term mentality, we're not the right company for you. So we've been building and building and building. And we got plenty of scars to show for it.

It's not easy sometimes when you just have to be determined and stick to your guns even though you're not getting much instant reaction or response. But I agree with that comment. I think electronics, Sean, we're maybe perceived as a company that's -- I don't like to use the word stable. That's a funny word. But that it's consistent, committed.

We haven't changed our strategy, really, in many, many years. Some people don't like it, but they know what it is. And I think that's, in some cases, a comfort as compared to some of the other choices available. So maybe that's working to our advantage.

The Park you see is very visible, very transparent, I'm talking about the customers, and it hasn't changed in the last 6 or 8 months. So we're -- maybe I'm going to go on to a little bit too much here, but we're always very willing and able and -- I mean, sorry, willing to admit our mistakes when we made mistakes.

We make them quite often, but there is consistency there, and there's a commitment, I think, that maybe has become recognized. The aerospace, of course, is a completely different story because we're the new kid on the block, and it's still taking some time to get fully recognized.

But as I commented, with GE, I think that really helped a lot in terms of our credibility. But our strategy there is really the same. It's to build things for the long term. There are plenty of short-term opportunities, quick-fix opportunities, instant gratification opportunities, which we turned down, which we just don't accept.

And it takes discipline not to do that, but it's part of who we are. So like I said, Sean, maybe that's little more than you're bargaining for in terms of response, but those are my comments. I agree with your statements. This year, with electronics, but particularly long term, I agree with those statements. .

So now, Brian, separately, I think that we've been hearing for a good number of quarters, really for years, the new efforts that you've been putting around refreshing for new products on the electronics side. In -- at least in my view, there hasn't necessarily been a whole heck of a lot of momentum on that front.

It sounds like from your commentary today that perhaps we are starting to really see some more tangible proof that we're going to get some momentum. You referenced also an opportunity here with Huawei.

So I want to see if I can get kind of a summary view around how we should think about that? Or is that something that we should still be very cautious about, not assume too much of an uptick in contribution from these new products? And then, I guess, part B to that, just, if there's a way to get a little bit more context around the nature of what you might be doing product wise with Huawei and was that a scenario, I realize timing wise, it's still a little unclear, but is that in coming quarters or is that much longer term?.

So, I guess, one thing we want to consider, Sean, is that we have legacy products, which over time are going to be in decline. So you see kind of a top line for electronics that isn't moving up. But the good thing is that the revenues that are being lost from our legacy products are being replaced by our revenues with our new products.

Now I'm not saying we're where we want to be with our new products at all, and I believe there still is real upside with the new products. And I think as you indicated or implied in your question, there is some validation of that in the marketplace.

The Huawei opportunity, we've asked that question only 40 times, how much and when, and we haven't received any meaningful answer, but we've been told it's big and it's going to move fast. Those, I think, 39 parts on there, some of their next-generation equipment. That's just an example.

I mean, there are other examples we can mention, but we decided this call to try to give a little more color about what we're doing. So I guess those are my 2 comments.

Anything else on that question I didn't address, though, Sean?.

Well, I think that generally addresses it. Last question here, and then I'll hop back in the queue. You indicated the -- this current quarter as been off to a poor start. Now typically, you're always going to have holiday impacts in this quarter.

So is there a way if you can help us to better understand -- the best way to characterize, I guess, your, disappointment in the start of the quarter relative to how typical fiscal fourth quarters would progress for you? But it oftentimes can be a slightly down quarter.

And I don't know if you're giving an indication that it could be a little bit more than slight?.

Well, we're not giving any indication. We just are looking at the facts. We have the first 5 weeks in the books. It's very difficult for us to extrapolate much from that because, as you pointed out, we have the holiday factor, which is very significant in December, really 2 of the -- 2 weeks of those 5 weeks.

It's a 5 -- December is a 5-week fiscal month for us. And then you know then, of course, there's a question about, well, what happens before people actually go on holiday. Are they build -- trying to build ahead so they can cover the holiday or are they already starting to think, I'm not sure where we're going with the economy and people hold back.

It was very difficult for us to get a good crystal ball on it. We're faced with this -- we're put in this situation almost every year around this time, and it usually takes some time maybe toward the end of January, unfortunately, to really understand where the quarter is going.

Of course, we also have the Lunar New Year in Asia later on in the quarter and that's not new. That's something which we almost always have in our -- I think, it's always in the fourth quarter, to my recollection. But that's just a factor that we need to consider.

I'm not trying to signal anything, but historically, we're asked and we do discuss the facts to-date in terms of our bookings and revenues so far in the quarter. I thought we should cover those -- that information. .

Our next question comes from the line of Leonard Cooper [ph], a private investor. .

Hi, Brian. Okay. I was just getting a little lost here.

Actually, we were cut off earlier when Matt was speaking, and I was wondering what the depreciation and amortization was for the last quarter?.

Can you help us with that, Matt?.

Sure. The depreciation for the last quarter -- let just get back to the number here. Third quarter was $847,000. It was last year's, same quarter, the third quarter, was $890,000 and the second quarter was $840,000. So it's $847,000, last year $890,000, last quarter was $840,000. .

Okay. Brian, I was thinking about manpower. I know that climate change and security are using up a lot of the new engineering graduates.

Is manpower and engineering and marketing, are they possible problem for Park?.

I guess, I'll give you my input on that, my perspective, rather. I think it's quality and not quantity. There's still a lot of people that seem to be graduating from -- with aerospace engineering degrees, and I don't think there's a short -- well, I guess, I shouldn't say that. Macro, the whole industry, I don't know.

But I don't sense there's a real shortage aerospace engineers. The challenge for us is to find aerospace engineers that are aligned with our way of thinking about things. And that's more difficult.

A lot of the companies that come from when we hire them have very different mindsets, very different attitudes about a whole host of things, maybe urgency might be one of them, as an example. .

Okay. I think about 2 years ago, you were speaking about the need for a new facility.

Has that problem been resolved?.

No, it hasn't. I think, remember, we have mentioned I think a number of times that we're waiting for this long-term agreement with GE. That's our understanding with them that we'll go ahead and build the additional facility once we enter into the long-term agreement.

So as I mentioned, and we, just a couple of weeks ago, we got the RFQ, which we're pretty sure is just for us. It wasn't a general RFQ, which is done with -- it's a part of a process to lead to a long-term agreement. The other thing I would add, though, is I mentioned another opportunity with a very large aerospace company, OEM.

And that would require significant capital if that does come to fruition. That would require a significant additional manufacturing capacity if that opportunity comes to fruition. So that's something else to consider. Remember, at the beginning of call, I mentioned that we're a little reluctant to return much more capital to shareholders at this time.

We have that in mind. We also were looking I didn't mention this, but an acquisition just about a month ago, it was in electronics, it was interesting to us, but it didn't work out. I guess, we ended up kind of late in the game. But it's a funny thing. You talk to bankers, they say, oh, don't worry about it, you always can get more money.

I think that's a little dangerous attitude. When you really need the money, maybe they're not so helpful. And the other thing is when we're dealing with these large aerospace companies, for us to say don't worry, we could build an x million-dollar factory, which we'll go get the money from a banker, I don't know how much they're going to buy that.

But if we could say, look, we're a public company, here's our balance sheet, we have the cash, that's a big, big advantage for Park. That's a big selling point. If we say, yes, we're going to invest in your program, don't worry about it. We're willing and we're able. There's the money that's right here in our balance sheet. We're a public company.

That's quite a bit of a different story than saying to one of these companies, like the one we're talking about, that oh yeah don't worry, our banker said we can go borrow the money if we have a need for it because anybody could say that, but not everybody has the money and is willing and able to use it, invest in the business for -- obviously for our benefit.

I think, that's a very big deal, especially for bigger aerospace companies, which they put in -- they have a program, they're talking 20 years. They don't want to get into bed with a -- married up to a supplier that may have financial troubles 3 years from now and doesn't have the ability to invest in additional capacity. It's a big deal for Park. .

Okay, Brian, it sounds very exciting. .

Thank you, Len. Happy new year, Len. .

Our next question comes from the line of Morris Ajzenman with Griffin Securities. .

Looking over the last several years, your gross margins have varied. I'm kind of approximating here from, let's call, from 28% to 30%, 31% on a quarterly basis. And clearly, you touched on during your call that maybe one quarter -- there's always -- there's occasionally one-off items that can negatively or positively impact gross margins.

But in the first quarter this year with 30% then the last quarter you dip down, second quarter 27.3%. This quarter, I think, you said you were 30% again. On a normalized basis going forward, normalized meaning any one-offs that always does occur.

And based on new product introductions and having some, I guess, optimism of electronics going forward, again, with new products, are we at a point where on a normalized basis, again, assuming revenues don't fall off the cliff, whatever that gross margins should be 30% plus on a quarterly basis going forward?.

That's really an interesting question. I think, there's really 2 parts of the answer. One is what we do. We talked about improving our yield in Kansas as an example. We talked about our new products, which are higher margin products. So we have to look at the content of the revenue and also our costs, which we're always going after everywhere we can.

Of course, you know the cost. There's a limit, your costs can't be less than 0. There's a limit to how much you can do with cost. But I don't think we'll ever stop looking at our cost, and obviously, as you commented the product content has a big impact upon margins as well.

Having said that, in the short term, especially the top line, revenue line is going to have a big impact upon gross margins. So if revenues fell off in the fourth quarter, that's going to have an impact on gross margins, if they came up, they have an impact on gross margins.

I think that if we start to see some movement up in our revenues and our long-term planning has always been consistent with revenues moving up, that, that upward trajectory of revenues will have a positive impact upon gross margins. It's just simple math.

It's not rocket [indiscernible] the 2 factors are what we do in terms of our cost, in terms of our product mix, product introduction. And then on a short-term basis, what the market does in terms of ups or downs in revenues. Long term, our objective would be to have gross margins, which would be over 30%. .

[Operator Instructions] And we have a follow-up from the line of Sean Hannan with Needham. .

So I wanted to touch on aerospace.

So since we did see some of the inventory management impacts with GE in the current -- I’m sorry, within the fiscal third quarter, should we think about the types of revenues that you've got in that segment to be roughly the general quarterly outlook as we progress through the year or are there other programs that are perhaps ramping a little bit that may provide some growth there? Or is the GE work down going to accelerate? How do we think about your viewpoints on this revenue level? And how that may progress within the aggregate to the segment?.

Well, at this point, we don't think that GE is going to help us, at least not 2016 calendar year in terms of any kind of revenue growth. So we really weren't proposing that, think of it that way, but I think it's not a bad way to think of it, Sean. Look at Q3 and that might be not a bad model for 2016.

Now with GE, we work in calendar years, so as I mentioned 2017 calendar. We are expected based on the forecast to see some upward movement to a level more than we were in the first part of this year.

That's a forecast, we don't know whether it's going to come true or not, but that takes into account also what we're discussing regarding the inventory work down.

The only point is that could have an impact upon the current -- sorry the next fiscal year because that's beginning of 2017 calendar will have an impact upon -- a little bit impact upon next fiscal year.

As far as other programs, there's nothing significant that we are aware of that will have a major impact, upward impact, on revenues in the aerospace in the coming year. So that doesn't -- I just should be clear because I don't want to mislead anybody unintentionally.

That doesn't mean that revenues won't move up, but it's not like we could point to a big program and say, okay, here's your forecast.

This is what is expected each quarter and therefore we can predict revenues moving up, which would be the case with a larger program often, but most of what we do in aerospace is still not GE, it's of lot of small programs, which are less predicable for us. And those are the things we're going after.

We also -- I guess, I should add that we talk about GE as if it's a zero-sum game, but it's really not true. We're almost at a constant state of being qualified for other GE programs outside of the sales of thrust reversers.

That's where we started with the GE facility in Baltimore that produces those products, and that's where we're pretty much sole source, I guess.

But there are very significant opportunities with GE Aviation for the -- in terms of the engine itself, the fixed structure in the engine itself, and where we seem to be in a constant state of being qualified on those opportunities. So that's a factor that we really can't quantify too well at this point.

It's a little bit of a wildcard, but it's all positive but we're talking about it as the baseline, what we know what is ours, what we have. There is upside even this year with GE, but that's more difficult to quantify.

I know it's a rambling answer, but I mean, I'm not suggesting what you do because you're smarter than I am as an analyst, but I don't think it's a bad idea to look at Q3 a little bit and think, well, this might be something I can use as a basis for a model for the coming year. .

Okay, so in that $8.5 million to $9 million-ish type of range is logical to think about for the quarters this calendar year?.

I would not disagree with that. I'm not recommending that. We're not forecasting that, but I don't think that's an illogical or unreasonable approach. .

Very helpful, okay. .

And obviously, Sean, I just want to add. It's our objective to beat that number, and we're working every day really to beat that number, beat those kind of numbers. .

Okay, and then last question here, and Matt, this might be geared a little bit more towards you.

But the costs from a dollar standpoint within the OpEx line, is there an ability to either maintain the dollar spend around these levels or is there even an opportunity you might have to pull down some of the costs because as a percentage of revenues here, they are a bit elevated versus some of prior periods.

So just want to get an understanding here of how to think about that. .

I think those costs, we're always looking at opportunities to improve our cost structure, but the level that we're at is we have some base that we're probably working off of here. So movement from that base, assuming we stay right around this revenue level, probably not going to be very significant. .

Okay, but then alternatively, it doesn't sound like there are any plans, expectations or things to consider that would materially start to bring that number up either?.

I can't think of anything that would materially change it in the near term. .

Thank you. I'm showing no further questions at this time. I'd like to turn the call back to management for closing remarks. .

Okay. Thank you, operator. One more thing I'd like to mention, hopefully some people are still listening, is that there is a live webcast at the Needham Conference, I think, it's a week from today. And that's available to anybody, and you might want to tune in for that if you're interested.

We'll be doing a presentation about Park and not just going through quarters, it's more just the history of Park and what we're doing because it's also intended for people that don't know much about our company. So I just want to mention that to you. And having said that, thank you very much for listening in our third quarter conference call.

Again, I like to wish everybody in the audience a very happy new year and the best of luck in 2016 to all of you. Thank you, operator. .

Ladies and gentlemen, that does conclude today's program. Thank you for your participation. You may all disconnect. Everyone, have a great day..